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Enabling the Circular Economy with Distributed Ledger Technology

By iov42 | 6 April 2022

The Circular Economy is rapidly gaining attention from businesses, governments and citizens alike. But what is it? What is triggering its move up the agenda? And how can digital technologies help support it?

What is the Circular Economy?

The concept of the Circular Economy in many ways takes us back to the ‘make do and mend’ philosophy issued during the Second World War.. Rationing meant that goods were not as freely available, and economic uncertainty meant that people fixed and re-used or re-purposed items rather than disposing of them and buying new goods. 

Fast forward to periods of economic prosperity -the era of hyper-connectivity through the Internet and global supply chain concepts such as ‘fast fashion’. The world, especially in parts of the affluent west, became very different to that of the 1940s. 

Mass consumerism has resulted in a far more disposable economy – buying cheap, selling fast – and a boom in waste. Eurostat estimates that >c.20kg of electronic products are put on the market per EU citizen annually (including household appliances and gadgets / handheld devices). Less than 40% of this is recycled and is treated as ‘e-waste’. Supply chains became linear; instead of mending, we threw broken or unloved items away.

This mass production and craze to have the latest gadgets and clothes appeared to be great for business -until we realised it wasn’t…

Now there is a different philosophy driving the Circular Economy. The high cost of waste, both financially and environmentally, is becoming something that governments, businesses and consumers are no longer willing to pay. Globally disrupted supply chains and increasing climate action have made the circular concept more palatable to businesses and governments. 

So this “make do and mend” philosophy (now known as the Circular Economy) has come back into fashion – but what does it exactly mean today?

Instead of an item’s life ending when it is no longer deemed ‘useful’, it is mended, repurposed, recycled. This creates a ‘post-consumer’ life cycle for items, and a loop rather than a linear supply chain. Patagonia is a great example of an organisation striving to better their environmental impact by prioritising reducing, reusing and recycling. 

Sounds great, so why is this not more common place?

Let’s use a smartphone as an example. At some point you will probably want to upgrade your phone. Maybe the battery no longer lasts a full day, maybe the screen is cracked. The cost of fixing it can sometimes be more than replacing it, and you may well prefer the look of the latest model. So you buy a new model and put the old one in a drawer at home, leaving it to gather dust with your minidisc player and digital camera.

For the individual, it’s often unclear how you can contribute to the Circular Economy. In the UK in particular, we have a lot more to do in terms of setting up recycling centres closer to home, making it easy, well understood, rewarding and habitual. If my phone is still usable, it could be refurbished and resold to someone with a need. If it’s broken beyond use, the components might be suitable to be stripped out and reused. Plastic parts can be reformulated and used for mouldings. Metals (including batteries) can be recycled and used for fuel cells and electronic contacts. 

But the person buying the second hand phone, the company responsible for recycling it and the organisation buying the recycled components will have a lot of questions. Will it work? Is it safe? Where did it originally come from? All of these questions relate to trust.

Now recreate a similar scenario for an electric vehicle battery that is worn out and the need for trust is amplified. There are numerous barriers to adoption that link to trust:

  • Authenticity of the items and the identity of the owners – the “identity and accountability” issue
  • Supporting information (e.g., about the age / components of the item) – the “integrity and origin” issue
  • Visibility across the entire life cycle of the item – the “traceability and transparency” issue

And some major ones in particular relating to behavioural change:

  • Ease of use of data systems providing information about the items – the “onboarding and user experience (UX” issue
  • Different levels of motivation to prioritise the Circular Economy – the “incentives” issue

So how can Distributed Ledger Technology (DLT) help?

DLT is the technological infrastructure and protocols (‘rules’) that allow access, validation, and record keeping across a network. The larger the network – more participants, more locations – the more complex it gets, and the greater the need for trust. Typically DLTs provide instant visibility about items (‘assets’) and claims made about them (e.g., the phone was made in Taiwan in 2017).

This technology is ideal for enabling Circular Economy supply networks because of the high levels of security versus traditional databases. Furthermore, the ‘distributed’ part of DLT implies that the network is decentralised. This means that ownership of the data within it isn’t held and controlled by just one company or individual – a potential single point of failure. 

Another difference to more traditional databases is that of immutability – once data is entered it is captured forever. Any changes (even fixing a typo) show up. This acts as a disincentive to corruption and manipulation of data.

This might sound great to some readers, but others will be asking ‘What happens if false data is entered… wouldn’t DLT perpetuate the ‘rubbish in / rubbish out’ problem’? Well yes, it could do. But this is where iov42 comes in.

What about iov42 specifically? 

Compared to other DLTs, iov42 has been engineered to put identities front and centre. Inherently, I don’t trust or mistrust a second hand phone. I trust or distrust whoever sells me the phone, or who the previous owner was. This is why identity is important. 

To every item (‘asset’) included in our DLT there must be an identity attached to it. And any claims made by identities – such as “the phone was made in Taiwan” or “contains no hazardous materials” – can be endorsed by reputable third parties. For instance, the manufacturer of the phone can attest to it having no lead or mercury in it (some phones do!). And we can decide if we want to trust the claim based on the reputation of the identity endorsing it. This means that if there is a sense of data being falsified, the identity who entered it can be held accountable. 

Another benefit of iov42’s DLT is that it has been designed specifically to be scalable, secure and energy efficient. This allows it to accommodate a high number of transactions (smartphone sales in Western and Eastern Europe in 2021 reached almost 200 million) without compromising performance. 

However, we are fully aware that technology itself will never solve issues relating to the enablement of the Circular Economy. When multi-stakeholder interaction takes place, especially digitally, the behavioural side of the equation, incentives and governance of any system become critical. This requires open mindedness, forward thinking and experiential mindsets, at least in the early days. If this sounds like you or your organisation, we’d love to hear from you.

For more information on how iov42 can help you in your mission for a more Circular Economy, please get in touch via our contact page here. Alternatively, if you already know a bit about DLT and its capabilities and want to have a play with our technology, check out our developer playground and see what you can create. 

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